Bulls on U.S. GDP growth have been wrong for five years, and they are still wrong. Q1 GDP grew just 0.1%. Sure, weather was a problem, but, as Mr. El Arian points out, in a robust economy bad weather in part of the US would not derail growth. Because of how GDP arithmetic works (growth rates are versus the prior quarter, not versus the year-ago-quarter), a weak Q1 brings down growth for the whole year, because even if growth picks up in the next three quarters it is starting from a lower base.
What bullish Wall Street economists, as well as supposedly deep thinkers like Summers and Krugman, miss is that economic policy matters, and Obama’s policies are terrible—assuming you care about economic growth rather than just winning elections by pandering to special interests such as big- money California enviro-maniacs. Obamacare’s tax hikes and disincentives to hire, ending the “Bush tax cuts for the rich,” Dodd Frank’s unnecessary red tape for community banks, the EPA’s attack on fossil fuel, the NLRB’s attack on Boeing, and Obama’s sophomoric attacks on “millionaires and billionaires” have all hurt growth.
And so have the things Obama has not done. Like fellow socialist Thomas Piketty, Obama cannot fathom the notion that creating conditions that facilitate profit-making activities by private companies would generate jobs, raise living standards, and reduce poverty. So he has not bothered to push a variety of reforms and initiatives that would do just that, including:
- Approving the Keystone XL pipeline, a privately financed “shovel ready” infrastructure project that creates high-paying jobs and boosts business confidence, not to mention improves relations with Canada.
- Encouraging LNG exports by expediting approval of new export facilities.
- Deferring to Harry Reid, Obama has failed to secure from Congress fast-track trade approval that would facilitate trade agreements with Europe and with Pacific Rim countries.
- Because Obama has not bothered with corporate tax reform, the U.S. still has the highest corporate tax rate in the world and about $2 trillion in profits is stranded overseas. This is creating serious distortions. Pharma giant Pfizer, which used to be a serial acquirer, supposedly had shifted to restructuring and divesting in order to become a more focused company. Now it has decided to spend $100 billion to acquire another pharma giant with a weak pipeline, Britain’s AstraZeneca. If the deal makes sense (very debatable) it is only because Pfizer can use its stranded overseas cash while becoming a London-based company with a much lower tax rate. GE is probably trying to buy most of the French company Alstom because it cannot think of anything else to do with its overseas profits. Meanwhile, 88% of Apples’ $151 billion in cash and marketable securities is stuck offshore, so instead of simply returning some of the money to shareholders via buy-backs and dividends it raised another $12 billion in the bond market. Smart move. EBAY’s stock is down 4.7% today because it took a charge for the potential tax hit from repatriating overseas cash.
I could go on, but the reality is that U.S. economic growth will continue to be stymied by Obama’s anti-growth sins of commission and omission. Confidence is being further undermined by his weak foreign policy. Yes, in retrospect perhaps the Iraq War was a costly mistake that increased Iran’s regional influence. But Iraq was then and Ukraine is now. Putin is not Saddam. Obama is right to reject the cowboy diplomacy of John McCain. But irresolute and incremental baby steps are not the way to dissuade Putin from invading Ukraine. Tougher sanctions on the Russian economy (not just select Putin cronies) and a robust energy policy that lowers prices, slams the Russian economy and reduces Europe’s dependence on Gazprom are the way to go—for diplomatic, economic, and environmental reasons. Specifically, Obama should approve the Keystone XL Pipeline, permit renewed U.S. exports of crude oil, open up more Federal land to oil and gas production, accelerate permits for LNG export facilities, and release oil from the Strategic Petroleum Reserve. A collapse in energy prices, Russian GDP and the ruble would get Putin’s attention—all without firing a shot. (But, then again, what would Tom Steyer say?)
Copyright Thomas Doerflinger 2014. All Rights Reserved.
